But Mr Chadda said because fewer emerging market currencies are pegged to the dollar there would be fewer countries put under strain from a greenback strengthening.
“We see some investment opportunities on a select basis in countries with healthier fiscal and current account balances, such as Mexico and China,” he said.
David Riley, head of credit strategy at BlueBay Asset Management, believes that those who fear a rerun of the foreign payments and credit crisis at the sovereign level in the major emerging markets are missing the greater present concerns – a lack of growth and politics.
“In the past couple of years, we have had a rising tide of easy money lifting all boats,” he says. “As the tide subsides, there are going to be some emerging markets that will be exposed and others will be fine. The challenge for investors will be to pick and choose winners and losers.”
Mr Riley favours Poland, Mexico and South Korea, while India and Brazil have been struggling, but making progress with policy adjustment.
Thanos Papasavvas, strategist at Investec Asset Management, expects the dollar to strengthen only against the yen in 2014 and 2015, and not against the euro, sterling or broad emerging markets.
Yields on local currency emerging market debt are “very attractive”, he said.
Mr Papasavvas believes the emerging debt markets have already priced in the risk of ‘tapering’ by the Fed, and tightening is still years away. Countries such as India, Indonesia, Turkey and Brazil will not have a destabilising impact on the asset class.
He favours Indonesia, for example, among markets included in the JP Morgan GBI EM index, as he regards the currency as cheap, the country is addressing its current account deficit and he expects a positive outcome from elections. He also likes South Korea and Taiwan, but is underweight Singapore.
Another contrarian voice is Jan Dehn, head of research at Ashmore Investment Management. He believes that although the dollar has lost roughly 15 per cent of its value against the euro during the past 18 months, this has priced out the eurozone crisis.
From 2016, as growth and inflation pick up in the US, the Fed is unlikely to be able to absorb the enormous amount of liquidity it has printed, Mr Dehn says.
He believes the US is likely to opt to erode its massive debt stock through inflation and devaluation of the dollar, causing the emerging market currencies to appreciate strongly.
